X-Message-Number: 1803
From:
Subject: CRYONICS - Alcor Finances
Date: Tue, 23 Feb 93 00:58:29 PST
To Alcor Members and Cryonet
>From Steve Bridge, President
Alcor Life Extension Foundation
With all of the requests for details on Alcor's funding
situation, I have decided (with Kevin's permission) to submit this
preview of an article that will be in the March Cryonics (headed to
press today). After due consideration, I have placed this in the
regular messages rather than the political section. The intent is to
show how cryonics organizations work financially (or don't work) and
not to start any kind of political battle. I hope responders will
keep that in mind.
As further explanation, please be aware that Alcor's current
problems are not new. We have been able to spend more than what a
strict budget would require for several years because of the
generosity of a few members, the past three years primarily because of
the generous bequest of Dick Jones, one of our suspension patients.
Alcor's Board several years ago agreed to use most of this money to
fund growth. While that growth has occurred, other instabilities have
also been created, and the number of generous, involved members seems
to have been reduced. Now we have to deal with the new situation in
which we find ourselves.
[I have also posted a long response to various financial issues
in the POLITICS subsection. It fits well with this and I hope many
members or potential members will read it. Kevin will post the number
to request.]
Steve
WHERE'S ALCOR'S MONEY?
(AND HOW CAN WE GET MORE?)
By Stephen Bridge, President
Cryonics has been a marginal financial enterprise since its
beginning twenty-six years ago. The earliest cryonics organizations
assumed that the notion of freezing dying people would take off like
wildfire (wild ice?) but foundered on the basic problems of all new
businesses: How much does it cost to manufacture your product (or
provide your service)? How much are customers willing or able to pay?
How do you persuade people that they have a *need* for your product?
How do you develop a product or service with high quality? How do you
find better answers to these questions than your competition?
These questions are the same ones that Alcor management struggles
with today. We have more experience and knowledge and money than
those earlier groups did and we understand more about the process.
But we are still not "experts."
This is the first of what will be many articles which explore
these questions and our attempts to answer them. This month we will
examine the basics of Alcor's financial structure and express some of
the ways that structure might be changed in the near future. Some of
the following may be elementary for old hands, but the basics are
important for newer members.
The Alcor Life Extension Foundation is a California nonprofit
corporation and federally tax-exempt--501(c)(3). Our funding comes
from several primary sources: Emergency Responsibility Fees (ERF)
(similar to membership fees in other organizations), donations by
members, the suspension funding of cryonic suspension patients,
magazine subscriptions and literature sales, and investment income.
Money that comes to Alcor is divided into four different funds
(like four different companies in our double-entry fund accounting
system, for you lovers of details). Donations for scientific research
are placed into the Research Fund. Money designated for the long-term
care of our suspension patients is placed into the Patient Care Trust
Fund (PCTF). Money which is to be spent for the normal expenses of
business (salaries, supplies, publicity, *Cryonics* magazine,
utilities, etc.) goes through the General Operating Fund (OF).
Finally, there is a sizable chunk of money which was donated to us in
1989 by suspension patient Richard Clair Jones and which was used to
create the Jones Endowment Fund (EF). In 1991 the Board of Directors
restricted $400,000 of that money to the Endowment Fund, for the
purpose of creating investment income for operating expenses. The
*intent* at that time was that the principal would not be touched.
Of course, nothing is that simple. I am still learning the
details myself, after three weeks as President, so I won't try to
explain everything about how each fund works. But there are several
situations you need to understand to see how the money is handled.
When money is received from a suspension patient's insurance or
other funding after his suspension, it is divided somewhat differently
than you might expect. Based on years of experience, we have worked
out how much money is required to keep a patient in cryonic
suspension, given the assumptions that our predictions of costs are
correct (primarily that of liquid nitrogen, the storage units, pro-
rated portion of rent and utilities, the salary of the primary
caretaker, and a portion of the salaries of other staff who spend part
of their time on patient care). For several years, we have said this
cost was $854.38/year for whole body patients and $150.76 for
neurosuspension patients. (These figures are currently undergoing re-
evaluation.)
So we need to make sure that the amount of money placed into the
Patient Care Trust Fund for each patient will earn at least those
amounts of interest each year, plus a safeguard against inflation.
Based on the history of investment, we assume that we can earn at
least 2% above inflation on our money. To simplify, what amount would
be required to earn these amounts at 2% interest and zero inflation?
$42,719 for whole body patients and $7,538 for neuropatients. To be
even more conservative, these amounts are doubled to cover unforeseen
economic disaster, legal challenges to the fund, and possibly the
future costs of reanimation. As one final buffer against inflation
(and remember that inflation in the costs of health care and medical
technology is much higher than general inflation), at the end of the
year we add to the PCTF 10% of all unrestricted income.
When the funds for a cryonic suspension come to Alcor, the first
action taken is to place $85,438 (for a whole body patient) or $15,076
(for a neuropatient) into the PCTF. Our *minimum* funding
requirements (we recommend you prepare to go above the minimums if at
all possible) are $120,000 for whole body and $41,000 for
neurosuspension. This leaves $34,562 (whole body) or $25,924 (neuro)
for paying the costs of transport, surgery, perfusion, and cool-down.
If we are efficient and the patient is in Southern California, we can
come out ahead. Money left over after costs are paid goes into the
Operating Fund to pay the normal bills of Alcor. If we are
inefficient or the transport costs are high (this was the case with
two long-distance neurosuspensions last year), we may actually lose
money on the suspension. Losses have to be made up from the OF.
The Operating Fund handles day to day business. Money moves in
and out of the OF fairly quickly and rarely amounts to more than a few
thousand dollars at any given time. There are always bills to pay and
payroll to meet. One exception to that has been prompted by a recent
fund-raising campaign.
By the time you read this issue, a major accounting firm will be
doing a professional audit of Alcor books. Money to pay for this
audit (at a cost of $16,500) has been raised through a series of
donations from our generous members. Normally when small donations
are received for ongoing expenses, those donations immediately flow
into the Operating Fund. I think the expectation from Alcor
management at the time the audit donations were being collected was
that they should similarly be funneled into the OF to pay current
bills and that later normal income would cover the audit instead of
covering regular bills. (Two accountants have told us that this is
perfectly acceptable accounting practice--but accountants don't run a
company and don't have to respond to members' questions.) My personal
philosophy is that a special request, single purpose fund drive like
that should result in an account that sits there until the bill is
paid, especially as we start getting our cash flow problems worked
out. That is what will happen on the Audit fund, at least, and I am
periodically routing ongoing income into that account to replace the
audit donations before the bill comes due.
Cash flow--the biggest problem of a cryonics company. Right now,
the amount of Emergency Responsibility Fees we collect from you
members pays less than half of our basic operating expenses. We have
been fortunate in the past to receive large donations from many
members. Out of 350 suspension members in 1992, about 75 gave
donations of one kind of another, totaling just over $48,000. $12,000
was from one member, a person who would not be considered wealthy, but
who sends us $1,000 per month. The most money from membership
(E.R.F.) comes in every quarter (since that is the option most members
have chosen). So we are in good shape in January, fading in February,
and desperate in March. An efficient suspension can sometimes help;
but that cannot be counted on. The suspension we performed last July
cost at least $10,000 more than the member's suspension funding
(counting the amount we were obligated to place into the Patient Care
Trust Fund.)
Then there is the Endowment Fund. In 1992, this fund produced
$21,165 in interest. [note: This amount was actually $22,910. SWB]
Not bad, but it also created ten times that much conflict and
confusion. The most common purpose of an endowment fund is to
function as principal to earn money for a university or a hospital.
Over the decades, people die and leave estates to the institution
which then invests the funds.
This is great for a well-established company which has its
property and programs in place. It is not going anywhere and it needs
to build a hedge against inflation for the future. This may have been
premature for Alcor to consider (although I was certainly one of the
people pushing for an Endowment Fund several years ago). In many
ways, we are still in our "entrepreneurial" phase, even after twenty
years. Money invested in growth or even in a new building might be
better used than money earning interest. If, for instance, money from
the Endowment Fund had been used to help acquire a new building a year
ago, we *might* (the answer is debatable) be in a better overall
position today. We should also note that Dick Jones himself did not
specify that this money was to be used in any particular way,
including as an Endowment Fund.
The past year saw several large bills which created cash flow
problems for us. We charted an air ambulance to lift him out to a
hospital. We had important attorney bills to pay in connection with
our defense of cryonics against the California Department of Health
(which we won, validating cryonics in California). We had a huge and
sudden Workman's Compensation bill to pay. The decision was made to
borrow money from the Endowment Fund to pay these bills.
The money was eventually paid back, and the Board of Directors
made more stringent rules concerning this sort of borrowing (no more
than 10% can be borrowed, it must be paid back with interest and the
interest goes into the principal, and the entire loan must be paid
down to zero at the end of the first quarter each year).
Those are great plans and they might work when we have more
members or if we were doing more suspensions each year. But again we
are stuck in a cash-flow crunch. By the time you read this, the
President's ability to borrow from the Endowment Fund will cease (10%
will be borrowed) and the possibility for paying it back by the end of
March appears doubtful.
So we need to re-think our finances. It may take several years
of membership growth before ERF payments equal our basic costs. Do we
change our rules about the Endowment Fund? Should we raise our
Emergency Responsibility fees to a more realistic rate? Since
neurosuspensions seem to operate in the red more often than whole body
suspensions, maybe we should raise the minimum for neurosuspensions
and encourage more people in both categories to provide funding
*above* the minimum. Some Directors have suggested that we are
placing too great a safety factor into the PCTF and we need to
allocate more to the operating fund. After all, breaking even isn't
really good enough. We need to come out *ahead* each year, so we can
upgrade our equipment, do research, hire more technical people, and
begin paying a living wage to the employees we already have (our
*average* annual salary per staff member is only $14,000 per year--
*before* taxes.)
We'd like to hear from you on this subject. Some part of our
income will have to increase very soon. Assuming you are not willing
to go into cryonic suspension yourself right away to help our cash
flow, what would you be willing to do? Can we get more donations from
some of the 75 members who contributed last year? Can the other 275
members help out some? Is it more fair to raise the annual fees?
Should we allocate our funds differently, raise our suspension
minimums, re-think the Endowment Fund? Or should we just cut staff
down to two, run suspensions on a shoestring, make *Cryonics* a
quarterly, stop sending out information to the public, and cancel the
800 number? The Directors are under a lot of pressure to do
*something* positive at the March 7 meeting. What is it worth to you
to see Alcor grow and prosper so that we have the strongest
organization and the best suspension team that you can imagine waiting
to rescue you?
For me it was worth taking a paycut of $13,000 per year and
moving two thousand miles away from my family so I can work twelve-
hour days. It's your serve.
END OF ARTICLE
****************************************************************
Note: While writing this article, I overlooked one very important
unusual expense that had been in my notes. During the past year,
Alcor lost its friendly co-tenant relationship with Cryovita, a for-
profit company created by Jerry Leaf (now in cryonic suspension). As
part of this separation, Cryovita's new President, Paul Wakfer, moved
Cryovita and its equipment and supplies to a different location to
begin a research program. Since a large part of the equipment and
supplies were essential to doing suspensions, and since Cryovita was
not interested in pursuing a suspension contract with Alcor, Alcor had
to purchase at least $10,000 in replacements. We were fortunate to
negotiate purchase of some additional items from Cryovita, and Paul
Wakfer was willing to carry the bulk of this amount as a one-year note
for about $24,000, with interest to be paid monthly and with larger
payments to be made whenever Alcor performs a suspension. There are
still two items which Alcor will lease from Cryovita for suspensions
until we can afford to replace them (we estimate replacement cost to
be at least $12,000.)
Steve Bridge
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